Justice Department Highlights Ongoing Efforts to Protect the Public and Shut Down Fraudulent Tax Return Preparers and Promoters Nationwide
Tax Division Obtained Injunctions Against Large-Scale and Individual Preparers and Promoters, Many of Whom Preyed on Low to Moderate-Income Earners and the Elderly
Today, the Justice Department announced the results of its ongoing efforts to combat fraudulent tax-return preparers and promoters of tax-fraud schemes. Taxpayers filed an estimated 142 million individual income tax returns for the 2011 tax year, with nearly 70 million taxpayers using a paid return preparer according to the Internal Revenue Service (IRS) Compliance Data Warehouse, Individual Returns Transaction File and Return Preparers and Providers Database, Tax Year 2011, filed through March 2013. The return filing deadline for the 2013 tax year is just over two months away on April 15, 2014. The department’s Tax Division has an active program to stop fraudulent return preparers and promoters from violating federal tax laws, particularly where their fraudulent activity can harm individual customers or drain the U.S. Treasury. In the last year, the division has obtained permanent injunctions against more than 60 preparers and promoters doing business all over the United States.
“During the time when honest taxpayers are preparing their returns, the Tax Division will work tirelessly to challenge those who would abuse the tax laws and take advantange of their customers,” said Assistant Attorney General Kathryn Keneally for the Tax Division. “The division’s attorneys and staff, along with our colleagues in the Internal Revenue Service, are working hard to shut down these abusive schemes and scams and punish the perpetrators where appropriate.”
The division’s enforcement efforts have been directed against against both large-scale return preparation franchises and smaller, independent return preparers and promoters. For example, in 2013 the Tax Division concluded civil actions resulting in permanent injunctions against ITS Financial LLC, the parent company of the Instant Tax Service franchise located in Dayton, Ohio, and against Instant Tax franchises in Las Vegas, Kansas City , Los Angeles and Indianapolis. Instant Tax Service claimed to be the fourth-largest tax-preparation firm in the nation. In entering the permanent injunction in November 2013 that ordered ITS Financial LLC to cease operating, the court found the "defendants' harm to the public is extensive and egregious, indeed appalling…especially so given the nature of Instant Tax Service's core customer - the working poor - who are particularly vulnerable to [the] defendants' fraudulent practices.” The injunction also barred Fesum Ogbazion, the sole owner and CEO of ITS Financial, from operating or being involved with any business relating to tax-return preparation.
Similarly, in September 2013, the division obtained injunctions that permanently barred the owners, Markey Granberry and Derrick Robinson, as well as Eumora Reese, a former manager of Mo' Money Taxes, the Memphis, Tenn., based tax-preparation chain that at one time operated as many as 300 offices in 18 states, from preparing tax returns for others and owning or operating a tax return preparation business. Earlier, in March 2013, a federal district court in Tennessee permanently shut down a Nashville, Tenn., licensee of Mo’ Money Taxes LLC and MoneyCo USA LLC.
Numerous smaller tax return preparation businesses and individual preparers around the country were also subjects of injunctions shutting down their business, including tax return preparers in Indiana, Maryland, Missouri, Texas, Georgia, South Carolina, Florida and California who were engaging in fraudulent practices.
The division also obtained injunctions against a number of fraudulent tax-scheme promoters. For example, in October 2013, a federal court permanently barred Tobias Elsass and his companies from preparing federal tax returns, promoting the availability of theft loss deductions or engaging in any other tax-related business. The court found that Elsass and Fraud Recovery Group promoted a nationwide scheme that falsely informed customers that they were entitled to claim large theft loss tax deductions, and then prepared the tax returns that improperly claimed such deductions. The court stated “there can be no doubt that the collective transgressions represent concerted and conscious attempts to game the nation’s income tax system not necessarily for the benefit of FRG’s customers, but for the profit of Elsass himself.” At the division’s urging, federal courts also enjoined a real estate appraiser who allegedly inflated easement values on historic properties to help customers claim millions in improper deductions, and a Chicago lawyer who the complaint alleges had lawyers, entrepreneurs and professional football players among his customers, from promoting tax fraud schemes and from preparing various types of tax returns (IRS Forms 1040, 1041, 1065 and 1120) for individuals, estates and trusts, partnerships or corporations, to help facilitate the schemes.
As set forth in the civil injunction complaints filed by the United States, fraudulent return preparers commonly falsify return information to take advantage of refundable credits available under the tax code, often manipulating a taxpayer’s income, expenses and dependents to maximize the amount of the refundable credit claimed. Some return preparers also take advantage of their customers by selling deceptive loan products with exhorbitant fees. As identified in the complaints, some of the fraudulent schemes and practices that have been stopped through injunction orders entered include:
· Preparing phony tax-return forms with fabricated businesses and income;
· Claiming false education and homebuyer credits;
· Claiming false and inflated deductions;
· Claiming false filing status;
· Claiming false dependents;
· Selling deceptive loan products and defrauding customers, who were largely low-income earners, by marketing false and fraudulent loan products to lure them into the tax-preparation offices;
· Filing tax returns without customer consent or authorization;
· Preparing bogus W-2 Forms, based on information from employee paystubs;
· Falsifying return information to claim inflated Earned Income Tax Credits;
· Preparing tax returns for cash payments, but not signing the tax returns; and
· Defrauding customers by requiring franchisees to charge phony and exorbitant fees.
In addition to the civil enforcement through injunctions that stop their illegal actions, many return preparers also face prosecution. Examples of those investigations can be found for fiscal years 2013 and 2014
In the past decade, the Tax Division has obtained injunctions against hundreds of tax-return preparers and tax-fraud promoters. Information about these cases is available on the department website . Return preparer fraud is one of the IRS’s “Dirty Dozen Tax Scams.”
The IRS advises taxpayers who may select a tax professional to prepare their return to be careful in selecting a tax professional to prepare a return. The IRS offers some basic tips and guidelines to assist taxpayers in choosing a reputable tax professional and is also offering taxpayers a number of instructional YouTube videos to help them prepare their own taxes for the upcoming filing season. Several options, including free assistance with preparation and electronic filing for the elderly and individuals making $50,000 or less, are available to help taxpayers prepare for the 2014 tax season and receive their refunds as easily as possible.